Tom loaned $20,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future,Tom canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.

Question

Quizplus · Accepted Answer

When a shareholder cancels a debt owed to them by a controlled corporation, it is treated as a contribution to the capital of the corporation and is generally nontaxable under IRS regulations. Therefore, the corporation should treat the cancellation as a nontaxable contribution to capital in this scenario.

Tom Loaned $20,000 to His Controlled Corporation